Sensex Trades Marginally Lower; Power Stocks Drag

Wed, 12 Apr 01:30 pm

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After opening the day on a flat note, share markets in India witnessed volatile trading activity and are trading marginally below the dotted line. Sectoral indices are trading on a mixed note with stocks in the FMCG sector and stocks in the banking sector trading in green, while stocks in the power sector are leading the losses.

The BSE Sensex is trading down by 55 points (down 0.2%), and the NSE Nifty is trading down by 11 points (down 0.1%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading down by 0.1% The rupee is trading at 64.62 to the US$.

In news from stocks in the telecom sector. Less than a week after Telecom Regulatory Authority of India (TRAI) ordered Reliance Jio (Jio) to withdraw its free offer, the company has come up with another similar offer with disruptive pricing.

The company unveiled a new plan for mobile phone subscribers, offering three months of freebies besides 1GB data a day for a one -time recharge of Rs 309 and above, drawing criticism from Bharti Airtel, which deemed it similar to the new entrant's previous plan that the regulator had stopped.

The telecom regulator had directed Jio to cease its Summer Surprise offer last week, thwarting its attempts to widen its subscriber base through free services.

The Summer Surprise offer announced last week, promised to provide complimentary services to every Jio Prime member for three months starting April 1.

While the operator has complied with the Telecom Regulatory Authority of India's (TRAI) order, all those who have already signed up will continue to get free services under the offer till July.

Jio was expected to start charging for its services from April 1. However, it extended the deadline to buy the Rs 303 plan and other plans until April 15.

Under the Jio Summer Surprise offer, those who bought the Rs 99 Prime membership by April 15, with a Rs 303 plan or higher, would be eligible for three months' complementary services.

Under the latest plan the company plans to offer similar disruptive rates, drawing the ire of its telecom rivals.

Bharti Airtel went on to say that the new plan resembled 'old wine in a new bottle' and has urged TRAI to look into the matter.

The entry of Reliance Jio and the fierce tariff war it has triggered has set off brisk activity in the industry for fundraising and consolidation, as the incumbents look for ways and means to fend off the competition.

At the time of writing, Airtel share price was trading down by 0.3%.

Moving on to news from stocks in the IT sector. Indian IT giant Infosys Ltd is set to kick off the fourth quarter earnings season when it announces its results tomorrow.

India's second largest IT services exporter, is expected to turn up with a modest performance for the fourth quarter when results will be announced on Thursday.

Infosys will close the quarter after witnessing a corporate governance controversy generated by founder N R Narayana Murthy's statements.

The statements centered around compensation paid to CEO Vishal Sikka and COO Pravin Rao. Further, the overall demand environment for the IT services industry still remains subdued with macro-economic concerns and inhibiting regulatory issues like the H-1B visa restrictions.

While Infosys share price is trading slightly higher on the bourses today, it is the actual earnings that will determine to direction the stock takes.

The same holds true for the Indian indices. As the earnings seasons kicks off the Sensex is trading near its all-time high.

The Sensex is perched near 30,000. The index is currently trading at 17.3 times estimated FY17 earnings. Considering the other MSCI indices, India's benchmark index is today one of the most expensive globally. The trailing twelve-month P/E multiple of the Sensex is way higher than the long-term average of 18 times.

Sensex P/E vs Global Indices

The earnings of Indian companies are however, far from their peak. And a steady revival in earnings could well keep the index at lofty valuations. Individual companies, especially mid and smallcaps, though, may not have that luxury. And unless their earnings growth catch up to the steep market expectations in the coming quarters, a sharp correction is inevitable.

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